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contractor trading and employment options

So what are the options available for you within the temporary employment industry? Temporary workers can choose between agency PAYE, direct employment by an umbrella company, or being a director and shareholder of their own limited company, often referred to as a personal service company or PSC.

Here's a brief overview of each option available to you as a contractor.

umbrella employee

How does an umbrella company work? You become a direct employee of the umbrella company and undertake various roles to suit your experience. As your employer, the umbrella company also provides you with all your employment benefits and protection, plus the reimbursement of approved business expenses.

But not all umbrella employers are the same. We've been independently voted Best Umbrella employer by readers of Contractor UK five times.


agency PAYE

The basic option. Agency PAYE is where the agency pays you after deducting PAYE. You do not become a permanent employee and so do not benefit from the protection and benefits this provides. Generally, agencies do not reimburse any of your business expenses, therefore your remuneration package will not be enhanced. Not all recruitment agencies offer PAYE.


limited company

With this option, you set up a limited company and become the director and shareholder. You have the statutory responsibility as the director, the administrative burden of operating the company, IR35 legislation (whether you can withdraw money via a dividend), and the financial risk of anti-avoidance legislation (managed service company). Best advice suggests that this option should only be considered by highly paid workers contracting for the long term.